Choosing a Winning Forex Trading System

Currently there are more than 1,000 Forex trading systems being offered by the three largest information brokers on the internet. These systems range in price from $19.95 US to more than $6,000 per year. The hype behind them all remains basically the same. Wake up, turn on your computer and become rich. However, the truth is far from this easy road to wealth that their sales pages give you. There are systems that work, but none of them are ever close to the claims that are made for these over-hyped products.

Trading systems fail for 2 reasons. The first reason is that the system or signals you purchase do not allow you to see the logic behind the picks. While this is not a problem when you have a winning trade, your confidence quickly erodes when a string of losing trades occurs. It is hard to have confidence in something that is completely unknown to you. Successful currency traders practice discipline, emotional control and money management to make a profit and when you do not understand why you are losing it is hard to remain disciplined or unemotional.

The second reason that systems fail is that they are purely scams. These systems are based on finding the right indicator or indicators and then finding data points that fit for winning trades. Rarely do these systems show a number of trades in succession as most of them use backward looking indicators that show great trades after the entry points have passed. While they look good they on paper, rarely do they hold up to close scrutiny. These failures are often explained as a variation in the trading system that you did not monitor well enough. Seldom do the hypothetical trades that are listed fail; it is only when put into a real situation that the system will fail.

Even though most systems that are sold have outrageous claims made for them, some of them do work and those that do have several things in common. A good Forex trading system will:

1) Have a style that can be easily understood and offers a common sense approach to the market and makes you aware of the possibility of losses so that you can plan your money management strategy.

2) Have a verifiable track record of producing winning trades in real time. Historical trades that fit the data are not a track record. There is software available today that can track the effectiveness of a Forex trading system. This software offers an excellent way of testing your system before buying it.

3) Be simple. The simpler the system is to understand and put into practice the more likely it is to be successful. As additional trading rules and limits are put on a system the more difficult it is to apply it properly and the risk of loss grows exponentially in relation to the complexity of the system rules.

4) Be “always in”. Forex trading systems that are always in the market are risky because all currency pairs go into periods of consolidation and during these times it is best to be out of the market. These periods of consolidation cause always in systems to be whipsawed costing you a lot of money as they buy and sell on each signal.

In conclusion, profitable Forex systems exist today. Some are being sold but many more have been developed by individual traders to suit their individual trading philosophy. It is almost impossible to buy your way to profit in the Forex market but by spending your money in education and your time in practice will lead you to a more successful trading career.